Development and trade facilitation (11)

Introduction to Development

The Meaning of Development
[Type the document subtitle]

Apurva Kandicuppa

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All that is valuable in human society depends upon the opportunity for development accorded to
the individual. - Albert Einstein
Development means many things to many people. Some use it to justify cutting down of trees,
some use it to in the context of sustainability, and some others use it to further their own personal
growth.
Economists often use the level of a nation’s per capita income as a measure for evaluating the
overall level of development of a country.
But in order to truly begin to understand the meaning of development, we need to analyze it
from every perspective.
The Economic growth perspective
Economic growth of a country is measured in terms of Gross Domestic Product (GDP), Gross
National Product (GNP) and Gross National Income (GNI).

GNI is the total value of all income accruing to residents of a country, regardless of the source of
that income, GDP measures the total value of all income created within the borders of a country,
regardless of whether the ultimate recipient of that income resides within or outside the country
and GNP is the market value of all the products and services produced in one year by labor and
property supplied by the residents of a country. Unlike GDP, which defines production based on
the geographical location of production, GNP allocates production based on ownership. GDP and
GNI are measured in the currencies of the respective countries. Since value of each country’s
currency is different, in order to bring them to a comparable measure, Purchasing Power Parity
(PPP) is used. The dollar, currency of the United States, becomes the base prices for determining
the purchasing power parity of GNI per capita in other countries.
Drawbacks
They failed to include the income that adds to the level of well-being of individuals, at the same
time, counting some, that does not contribute to human welfare. Moreover, they do not include

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the value of home production, i.e. the value of output derived from the labor of women and
children, as these are not valued by or exchanged in the market.
Improvements to GDP and GNI
The measure of Economic Welfare (MEW) and the Genuine Progress Indicator (GPI) were

devised as alternatives to measure an economy’s “true” output and income.
MEW= value of GDP + value of leisure time+ value of unpaid work- value of environmental
damage
GPI = A + B - C - D + I
A is income weighted private consumption
B is value of non-market services generating welfare
C is private defensive cost of natural deterioration
D is cost of deterioration of nature and natural resources
I is increase in capital stock and balance of international trade
These alternatives adjust GNI and GDP measures both for the omissions that contribute to
human welfare not included in the traditional methodology for determining GNI or GDP, as well
as those included values that adversely impact human welfare.
Sustainable Development
Sustainable development was defined as “development that meets the needs of the present
without compromising the ability of the future generations to meet their own needs.” Efforts
were made to operationalize it to account for the impact of current economic activities on natural
resource use and the carrying capacity of the environment to absorb change through the creation
of the Genuine Progress Indicator (GPI) and other measures like the Environmentally adjusted
Net Domestic Product or EDP (obtained by subtracting the costs of natural resource depletion
and environmental degradation from net domestic product), as well as other efforts to “green” the

national accounts, countries traditionally use to measure the economic progress.

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Human Development Index (HDI)
‘After many decades of development, we are rediscovering the obvious- that the people are both
the means and the end of development’. (Haq, 1995)
The Human Development Index (HDI) is a composite index using “longevity, knowledge, and a
decent standard of living” as the representative indicators for development. Additional choices,
highly valued by many people, range from political, economic and social freedom to
opportunities for being creative and productive, and enjoying personal self-respect and
guaranteed human rights.
The actual index uses estimates of life expectancy at birth, the adult literacy rate, school
enrolment ratios, and the PPP GDP per capita to calculate an HDI value for each economy. The
value of the HDI index can vary between 0 and 1, with an HDI score closer to 0 indicating
greater distance from the maximum to be achieved on the aggregate of the factors entering HDI,
while the value of 1 indicates greater achievement relative to the maximum attainable on the
variables that comprise the index and thus a higher level of human development. HDI gauges
how far a country is from reaching, on average, the maximum value of the components that make
up the HDI.

Human development has two sides: formation of human capabilities- such as improved health,
knowledge and skills- and the use people make of their acquired capabilities- for leisure,
productive purposes or being active in cultural, social and political affairs. If the scales of human
development do not finely balance the two sides, considerable human frustration may result.
Amartya Sen on HDI
“The usefulness of the HDI is dependent on understanding its purpose and limits. It is aimed at
broadening the informational narrowness of the GNP and the GDP. This it does, but it cannot
capture the breadth of the human development approach in general. No one number can, no
matter how much we try to pack into that number”.
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Adjustments to the HDI
The Gender-related Development Index (GDI) takes into account differences in the level of
attainment of women and men on the values of the indicators that enter the HDI. In making such
a correction for gender differences in life expectancy, education and income, every country
suffers deterioration in the value of its gender-adjusted HDI, meaning in no country do women,
on an average, score higher than or equal to men on the HDI components.
India’s ranking on the Human Development Index
The Human Development Report 2013 released by the United Nations Development Programme
(UNDP), ranked the country at a low 136 among 186 countries on its human development index

(HDI). With its index of 0.554, it is miles away from Norway, which is ranked number one with
an HDI of 0.955
The Human Poverty Index
The weakness of HDI is that it does not indicate what is happening to the poorest members of
society, except to the extent that this is reflected in the overall HDI value via, say, the impact of
poverty on average life expectancy. The UNDP introduced in 1997 a Human Poverty Index
(HPI) that utilizes slightly different variables from either HDI or GDI and hence is not directly
comparable. Instead of life expectancy as a variable, the HPI includes the “percentage of people
without sustainable access to an improved water source” and the percentage of children under
five who are underweight” as variables entering the index. Lower value is better than the higher
value because each variable is actually a “deprivation” indicator rather than an achievement
indicator, as in the case of HDI or GDI variables.
Development as Capability Expansion
The capabilities approach sees human life as a set of “functionings”- and it relates the evaluation
of the quality of life to the assessment of the capability to function. A functioning is an
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achievement of a person: what he or she manages to do or to be, and any such functioning
reflects, as it were, a part of the state of that person. The included items may vary from each
elementary functionings as escaping morbidity and mortality, being adequately nourished;

undertaking usual movements etc., to many complex functionings such as achieving self-respect,
taking part in the life of the community and appearing in public without shame. The capability of
a person is a derived notion. It reflects the various combinations of functionings he or she can
achieve. Capability reflects a person’s freedom to choose between different ways of living.
Human Rights and Development
The ideas of human development and those of human rights are linked in a compatible and
complementary way. If human development focuses on the enhancement of the capabilities and
freedoms that the members of a community enjoy, human rights represent the claim that
individuals have on the conduct of individual and collective agents and on the design of social
arrangements to facilitate or secure these capabilities and freedoms.
The human rights literature is concerned not only with the political and civil liberties, but also
with rights to education, to adequate health care and to other freedoms that have received
systematic investigation in Human Development reports.
Economic Growth and Development
Though both are sometimes used synonymously, they are in fact, two entities that are
interdependent. There can be no growth without development just as there can be no
development without growth. Growth implies an increase in output per unit of input.
Development goes beyond these to imply changes in the structure of outputs and in the allocation
of inputs by sectors. Growth is measured through GNI and GDP while overall development is
measured through HDI or HPI.

Conclusion
The current development scenario in India with its focus on economic growth and redistribution
is best exemplified by the debate between Mr. Amartya Sen and Mr. Bhagwati where Mr.

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Bhagwati roots for economic growth as a precursor to redistribution while Mr. Amartya Sen
would prefer vice-versa (Sequencing of policies).
Mr. Bhagwati argues that without economic growth, financing the ever expanding areas of
entitlement in the form of food security ordinance (which seeks to provide highly subsidized
food to nearly 70 percent of population), right to work (MGNREGA), right to education and so
on would be extremely difficult especially in the wake of the recent slowdown in economic
growth, unsustainably high fiscal deficit and the falling rupee value.
But an important question here is- who is this development for? Is it for the wealthy upper class
that controls the economy, is it for the humble farmer who sows so we can eat, or is it for the
millions of impoverished people of India who lead a hand to mouth existence?
The answer to this question would lead us to the realization that it is impossible to imagine the
idea of development while ignoring the needs of the vast majority of the people who lead
deplorable lives due in part to the failure of the government to provide them the basic support.
Thus, development is not merely about how fast an economy grows, or how much per capita

income a nation generates, it is rather about how well it is able to benefit the most deprived of
the society.
As Mahatma Gandhi said, "Whenever you are in doubt, or when the self becomes too much with
you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom
you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him
[her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own
life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually
starving millions? Then you will find your doubts and your self melt away."

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